While the US stock market continues to trade upwards as if it's untouchable, the world is collapsing around it. US household debt has climbed to an astonishing $16.15 trillion in the second quarter of the year. Credit cards and car loans account for a portion of it, but mortgage balances score a homerun, accounting for $207 billion. Prices were expected to rise since the start of the pandemic, but perhaps not in such proportions. Home and car prices have grown over 36% since the fourth quarter of 2019, bringing the US household debt over $2 trillion higher than it was just before the pandemic at the end of 2019.
Rising inflation, Russia’s invasion of Ukraine, scarcity of oil and gas, geopolitical tensions, and maybe even the Biden administration declaring a public health emergency on account of the monkeypox, are only bound to make the situation harder than it already is. Warning signs and alarm bells are going off everywhere.
The spread between the 10-Year and 2-Year Treasury Note yields has been the other way around for over a month. On Thursday, the spread stood at 35 basis points with the 10Y yield at 2.688% and the 2Y yield at 3.047%. A persistent inverted yield has historically been a reliable indicator of an upcoming recession. This of course isn’t necessarily a surprise considering that the US went into a ‘technical’ recession last week when it reported two consecutive quarters of negative growth. Typically, dire economic conditions tend to force investors to turn towards more low-risk assets such as interest-bearing savings accounts and government bonds, or at least growth stocks. And although the stock markets had their worst first half in over 50 years, they rallied in July and continue to send mixed signals.
Thursday’s overall stock market performance showed a slowdown ahead of the Non-Farmers Payroll (“NFP”) report, but no further reactions. Nasdaq100 rose 0.4% to 12,720, while the S&P500 and Dow Jones Industrial Average (“DJIA") lost 0.1% and 0.3% respectively. Could it be because the stock market has already bottomed out? Or that the investors have faith in the Fed’s hawktalk?
Investors across the globe are anticipating tomorrow's major economic release - the US NFP Report. This is a key economic indicator that breaks down the labor market situation in the US, showing how many new jobs have been added to the market excluding some sectors such as agriculture, government, and non-profit organizations. The data is crucial for monetary policy decisions. According to Brent Shutte, “Investors will be looking for evidence that the pace of job gains is slowing to a more sustainable pace and/or that more Americans are returning to the labor market." Employment data can tip the scales in favor of more or less aggressive interest rate hikes during the Fed’s next meeting, which in turn affects the price of the USD. USD/JPY sees a sharp fall after battling with resistance levels (around 133.00) in the morning, as investors forecast weak NFP data.
Meanwhile, during the Tesla shareholders meeting yesterday, Elon Musk forecasted that we are past peak inflation and that the economy will experience a mild recession for less than 2 years. He also said that share buybacks may be on the table in the future if the world is more ‘stable’ and Tesla has the cashflow. Tesla CEO also announced that the company plans to produce 20 million EVs annually by 2030, with the help of approximately 12 factories, each of which could produce 1.5 - 2 million cars per year.
AMC Entertainment Holdings Inc (“AMC”), which became one of the notorious meme stocks in 2021, said that it plans to issue a dividend to all shareholders, but instead of cash it will be preferred shares. The preferred stock would be listed on New York Stock Exchange (“NYSE”) under the ticker symbol APE as a tribute to the ‘ape’ investors that rescued the company from bankruptcy. However, company shares dropped about 6% in extended trading on Thursday.
Allianz SE’s’ second-quarter earnings report showed that the company missed its targets by 23%. Net profit came in at €1.706 billion, compared to the €2.225 billion the previous year. The company attributed the losses to a $6 billion US lawsuit settlement and general market volatility.
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